Difference Between Residential and Commercial

Posted on October 25, 2011 by koshal Last updated on: December 16, 2014

Residential vs Commercial

Difference between residential and commercial is very obvious. The words residential and commercial come from residence and commerce respectively. Hence, their difference is crystal clear to all. Residential refers to place that is used for purposes of living; commercial refers to a place that is used to gain profit, or conduct activities that are other than the simple purpose of living. However, there are many more subtle differences that people are not aware of, and this differentiation is used by authorities to tax properties differently whether it is stamp duty, electricity rates, or any other utility bill. This article tries to highlight the differences between residential and commercial properties from the perspective of the owners, those who make use of them and the authorities that view these properties differently.

What does Residential mean?

Now, residential is an adjective that according to the Oxford English dictionary means “designed for people to live in.” Before we move forward to understand the difference between a residential property and a commercial property, it is worthwhile to note that even banks differentiate between them and offer different rates of interest on mortgages of these two types of properties. Therefore, think twice before you decide to buy a property. Interest rate to buy a residential property is lower than the rate for a commercial property. This is because, banks realize that a commercial property will earn for the owner, while residential property also will earn on its own, but slowly, as the values of property go up.

The most glaring difference between a residential and a commercial property is that the residential property is one that is used solely for living such as bungalows, apartments, condos, and cooperative societies. It is thus clear that a property where a person lives in is called a residential property.

What does Commercial mean?

According to the Oxford English dictionary, commercial means “concerned with or engaged in commerce.” On the other hand, factories, malls, office structures, etc. qualify under commercial properties. It is thus clear that one works in a commercial property.

For investment purposes, one has to decide beforehand as to whether he is buying a property to make homes or develop retail space. If the decision is to develop shops or offices, the property he buys should be commercial property as authorities develop properties as commercial or residential. Once bought, it is nearly impossible to make any changes in its usage.

Knowing the differences between the two types of properties is vital before taking an investment decision. The two properties are taxed deferentially; authorities charge more from the owner for the registration and stamp duty, as they feel commercial property brings in higher return on investment.

Banks perceive commercial properties as riskier than residential properties, as it believes that owner of the residential property can be made to cough up the loan amount rather easily, which is not the case with commercial property buyers. Loans for commercial property are therefore for shorter tenure and carry higher rates of interest than residential properties that are often mortgaged at very low interest rates for durations as long as 30 years.

Now, that we have idea about commercial property it is time to see if the word has more meanings. In what way is this adjective, commercial, used? It is always used to mean concerned with or engaged in commerce.